Latest / Bloomberg Intelligence / The Outlook On Real Estate

Transcript

The Outlook On Real Estate · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com Slash podcast. Commercial real Estate for
• 0:23
  Speaker 1: just you know, walking down the streets of New York City,
• 0:25
  Speaker 1: we need a lot of empty spots right across the
• 0:28
  Speaker 1: street from where we are in next door, yep, and
• 0:31
  Speaker 1: next door lots of commercial real estate empty. Um. But
• 0:35
  Speaker 1: you know, on the residential side, it is extraordinarily hot
• 0:38
  Speaker 1: and I can attest to that. Let's talk all things
• 0:40
  Speaker 1: real estate. We do that with Hassan Naji, President and
• 0:43
  Speaker 1: chief executive officer of Marcus and Millichap, and real estate
• 0:48
  Speaker 1: firm based in Calabasas, California. I've been to Calabasas, California.
• 0:52
  Speaker 1: Pretty cool place, all right, Hassan, thanks so much for
• 0:55
  Speaker 1: joining us here. I know you guys reported some earnings
• 0:57
  Speaker 1: this morning. Give us the lowdown of what you're were
• 1:00
  Speaker 1: re reporting today. Good afternoon, Thanks for having me on
• 1:03
  Speaker 1: the program. We were very proud to report the largest
• 1:08
  Speaker 1: revenue and the income quarter in our fifty year history.
• 1:11
  Speaker 1: The second quarter was a reflection of a lot of
• 1:14
  Speaker 1: delayed and canceled transactions that we're still able to resurrect
• 1:18
  Speaker 1: from last year, as well as incredible new demand from
• 1:23
  Speaker 1: buyers that see commercial real estate as a great investment
• 1:27
  Speaker 1: because the economy is recovering. We added almost a million
• 1:31
  Speaker 1: jobs in July and we're back to UH sixteen and
• 1:36
  Speaker 1: a half million jobs of the twenty two million that
• 1:38
  Speaker 1: we've lost, So the recovery is bringing a lot of
• 1:40
  Speaker 1: confidence into the fact that eventually those empty spaces you
• 1:45
  Speaker 1: were talking about right there in Manhattan will get re occupied.
• 1:50
  Speaker 1: And interest rates are so low, with so much liquidity
• 1:53
  Speaker 1: in the marketplace, that the investment community is seeing real
• 1:57
  Speaker 1: estate as a great play right now, given we're stocks
• 2:00
  Speaker 1: are at, given when bronze are at and the fact
• 2:02
  Speaker 1: that commercial real estate has proven to be a very
• 2:04
  Speaker 1: good inflation hedge going into an economic expansion, So all
• 2:08
  Speaker 1: those things are happening. We as a company have had
• 2:12
  Speaker 1: a number of key execution strategies. We've acquired nine firms
• 2:16
  Speaker 1: in the last three years. We have done a number
• 2:18
  Speaker 1: of technology upgrades which were just in time for the pandemic,
• 2:22
  Speaker 1: where we had no downturn in our operations or any
• 2:26
  Speaker 1: kind of a disruption. Thankfully, technology investments have really paid
• 2:31
  Speaker 1: off and that productivity that we brought to our salesforces
• 2:35
  Speaker 1: is really showing up in the numbers. Breaking out the
• 2:38
  Speaker 1: types of commercial real estate that are the most popular ones,
• 2:42
  Speaker 1: where do you see that? I mean, it's hard to
• 2:44
  Speaker 1: believe it's offices, But is it restaurants? Is it gym's
• 2:48
  Speaker 1: What kind of commercial real estate is seeing the most success. Well,
• 2:53
  Speaker 1: the beauty of commercial real estate is that there's something
• 2:57
  Speaker 1: for everyone on the menu. For risk of our investors,
• 3:00
  Speaker 1: a G baby movements that are very yield and cash
• 3:03
  Speaker 1: flow sensitive, apartments and single tenant at least those are
• 3:09
  Speaker 1: your drug stores, your fast food restaurants, auto parts types
• 3:13
  Speaker 1: of outlets where you have one tenant on a long
• 3:16
  Speaker 1: term lease. The cash flow is very predictable there, they've
• 3:19
  Speaker 1: been incredibly popular. Apartments have been very popular for many,
• 3:24
  Speaker 1: many decades because they're stable regardless of the economic cycle
• 3:29
  Speaker 1: for the most part, and uh, there's so much demand
• 3:32
  Speaker 1: for affordable housing that apartment demand has been very very strong.
• 3:37
  Speaker 1: On the other end of this spectrum. You have hotels
• 3:40
  Speaker 1: and office buildings to it to a very large extent,
• 3:44
  Speaker 1: and shopping centers that were hit incredibly hard by the pandemic,
• 3:48
  Speaker 1: of course, and for those more higher risk, higher return
• 3:52
  Speaker 1: types of investors, those asset classes are providing a phenomenal
• 3:57
  Speaker 1: uh if you will acquire and fix it or acquire
• 4:01
  Speaker 1: and ride the recovery play And we're seeing both ends
• 4:04
  Speaker 1: of those safety and then more high risk, high return
• 4:08
  Speaker 1: ends at the spectrum play out in the marketplace. You know,
• 4:12
  Speaker 1: maybe just have my New York City bias here, but
• 4:14
  Speaker 1: I am less cautious, much less cautious on the rebound
• 4:17
  Speaker 1: of commercial real estate. You know, we're just seeing hassam.
• 4:20
  Speaker 1: Some companies like Wells Fargo and black Rock announced some
• 4:24
  Speaker 1: delays in bringing people back to the office. I think
• 4:27
  Speaker 1: this is going to be folks just kind of feeling
• 4:29
  Speaker 1: it out a little bit. I think you're right. In
• 4:32
  Speaker 1: the urban markets, where we have so much dependency on
• 4:36
  Speaker 1: public transportation, the new rounds of outbreaks have been a
• 4:41
  Speaker 1: major concern. Even without frankly, the resurgence of new cases
• 4:46
  Speaker 1: COVID cases, we knew that the urban markets would take
• 4:50
  Speaker 1: time to recover. People are going to be cautious and
• 4:52
  Speaker 1: there is going to be a kind of a dampening
• 4:54
  Speaker 1: effect on office space usage and office space demand in
• 4:59
  Speaker 1: the near term, probably the next twelve to eighteen months.
• 5:02
  Speaker 1: But on the other end of the scale, if you
• 5:04
  Speaker 1: look at the fact that new business formations in the
• 5:07
  Speaker 1: United States are at a record high, we're seeing this
• 5:11
  Speaker 1: job growth resurgence and changes in the economy where people
• 5:14
  Speaker 1: have discovered you can have a hybrid work model. People
• 5:18
  Speaker 1: can work from home some of the time at least
• 5:21
  Speaker 1: and and commute much less and be more productive. On
• 5:25
  Speaker 1: top of all that, you're seeing new generation of companies.
• 5:29
  Speaker 1: Forming companies will eventually start to expand and there will
• 5:32
  Speaker 1: be a backfill for demand, uh that is dampened by
• 5:37
  Speaker 1: this new hybrid model and cautiousness. It's not a straight
• 5:41
  Speaker 1: up recovery where it's a hockey stick for for the
• 5:43
  Speaker 1: office market. We don't expect that, but we do believe
• 5:47
  Speaker 1: that there will be a recovery. In Urban America has
• 5:50
  Speaker 1: so many different benefits that were really thriving pre pandemic,
• 5:56
  Speaker 1: and I think it's a matter of time before those
• 5:58
  Speaker 1: come back, and I would a gin that that's part
• 6:00
  Speaker 1: of the reason why some of the markets that were
• 6:02
  Speaker 1: hardest hit by the pandemic are also poised for the
• 6:05
  Speaker 1: biggest recovery. We're talking New York, San Francisco, Austin. Correct. Absolutely.
• 6:10
  Speaker 1: If you look at the twelve months job creation, New
• 6:14
  Speaker 1: York is number one over the last twelve months at
• 6:18
  Speaker 1: eight point three percent employment growth with over three thousand
• 6:22
  Speaker 1: jobs created. It's the number one metro on this list
• 6:26
  Speaker 1: that I'm looking at produced by a research department, followed
• 6:28
  Speaker 1: by Boston, Chicago, Dallas, Los Angeles, Philadelphia, DC, Atlanta, Detroit,
• 6:34
  Speaker 1: and Northern New Jersey. From a percentage perspective, those metors,
• 6:38
  Speaker 1: a lot of those metros were hit very, very hard,
• 6:40
  Speaker 1: and they're making a big comeback. To your point, all right,
• 6:43
  Speaker 1: talk to us about interest rates here. We're obviously historically
• 6:46
  Speaker 1: low interest rates, although do have the rates popping up
• 6:49
  Speaker 1: today of the tenure up to about one point nine
• 6:51
  Speaker 1: On that strong jobs gain, people are betting that rates
• 6:55
  Speaker 1: are in fact going to rise again from historically low levels.
• 6:58
  Speaker 1: How sensitive is kind of the commercial side of the
• 7:01
  Speaker 1: real estate business to interest rates. It's very sensitive because
• 7:05
  Speaker 1: the cost of debt plays a big part in the
• 7:08
  Speaker 1: way you value commercial real estate. Most commercial real estate
• 7:11
  Speaker 1: of vast majority of the transactions do rely on financing
• 7:16
  Speaker 1: from banks and credit unions and other forms of of lenders,
• 7:20
  Speaker 1: life insurance companies, UH, the commercial mortgage backed securities the
• 7:24
  Speaker 1: MBS marketplace, and therefore interest rates play a big part.
• 7:28
  Speaker 1: On average, we see loan to value ratios of somewhere
• 7:33
  Speaker 1: between depending on the property type. So where interest rates go,
• 7:38
  Speaker 1: valuations UH follow, and we are expecting interest rates to rise.
• 7:43
  Speaker 1: They have to. We can't stay at these record low
• 7:46
  Speaker 1: levels forever. But the beauty of the balance in the
• 7:49
  Speaker 1: marketplace for commercial real estate is that if inflation is
• 7:52
  Speaker 1: coming back, if interest rates are rising and those are
• 7:56
  Speaker 1: being accompanied by job growth, by new occupancies, by some
• 8:00
  Speaker 1: new demand of stilling those empty spaces you are commenting
• 8:03
  Speaker 1: on in Manhattan and other places, then the rents should
• 8:07
  Speaker 1: be going up and the income levels of the properties
• 8:09
  Speaker 1: should be going up along with inflation and along with
• 8:12
  Speaker 1: interest rates. That's why commercial rules it is viewed as
• 8:14
  Speaker 1: an inflation hedge, especially property types like hotels which are
• 8:19
  Speaker 1: marked to market on a daily basis depending on demand
• 8:22
  Speaker 1: for their room rates, and apartments which typically have a
• 8:25
  Speaker 1: twelve month lease. And UH, we're we don't get concerned
• 8:30
  Speaker 1: about interest rates rising as long as it's rising for
• 8:32
  Speaker 1: the right reasons, economic growth and and new demand being created.
• 8:38
  Speaker 1: If we get variations and interest rates because of some
• 8:41
  Speaker 1: shock or because of some credit freeze, that's a whole
• 8:43
  Speaker 1: different story. All right, Son, thank you so much for
• 8:46
  Speaker 1: joining us. We really appreciate your perspective and experience. As Nagi,
• 8:49
  Speaker 1: CEO of real estate firm Marcus and Millichap m m
• 8:53
  Speaker 1: I is the stock symbol ticker to put into your Bloomberg.
• 8:57
  Speaker 1: They reported some earnings. Uh, so we appreciate getting his
• 9:00
  Speaker 1: thoughts on the real estate market. Good news on the economy.
• 9:07
  Speaker 1: To end the week here, all right, let's get some
• 9:10
  Speaker 1: insight into some of that economic data. We welcome Sarah House.
• 9:13
  Speaker 1: She's director and senior economist at Wells Fargoes Corporate and
• 9:17
  Speaker 1: Investment Banks. Sarah, thanks so much for joining us here.
• 9:19
  Speaker 1: I love to get your take on the job's number
• 9:23
  Speaker 1: and kind of where we are in this economic reopening. Yeah.
• 9:28
  Speaker 1: I think all around, it was a pretty strong report
• 9:31
  Speaker 1: that was hard to find fault with, so, of course
• 9:33
  Speaker 1: we saw perils come in better than expected. We saw
• 9:36
  Speaker 1: a nice upward revision to the prior two months the
• 9:39
  Speaker 1: unemployment rate self for all the right reasons, as we
• 9:42
  Speaker 1: did see a drop in the number of people reported
• 9:45
  Speaker 1: unemployed even as the labor force rose, and of course
• 9:49
  Speaker 1: you saw another decent gain in earnings. UM. I think
• 9:52
  Speaker 1: if you want to nitpick with with the report, you
• 9:54
  Speaker 1: could probably look at the participation rate and maybe wonder
• 9:57
  Speaker 1: why it's it's not rising further. But I think it
• 10:00
  Speaker 1: comes down to the fact that there's still a lot
• 10:03
  Speaker 1: of constraints on the labor supply right now, and I
• 10:06
  Speaker 1: think given where we are with the delta variant, we're
• 10:08
  Speaker 1: probably going to see those constraints get prolonged a little
• 10:11
  Speaker 1: bit here in the upcoming months. Sarah, will we look
• 10:14
  Speaker 1: at that increased cost of labor, like, why are the
• 10:17
  Speaker 1: sharp jumping wages over the past few months, Um, What
• 10:20
  Speaker 1: do you think maybe contributing to that? It just speaks
• 10:26
  Speaker 1: to how reluctant I think a lot of workers are
• 10:29
  Speaker 1: to come back, either because they are concerned about the
• 10:32
  Speaker 1: coronavirus or they have childcare issues, and so I think
• 10:37
  Speaker 1: what we're seeing is that employers have have really had
• 10:39
  Speaker 1: to pony up to get workers back in the door,
• 10:42
  Speaker 1: especially in those lower paced sectors where maybe those extra
• 10:46
  Speaker 1: unemployment benefits are replacing a higher rate of income UM.
• 10:50
  Speaker 1: But also those are the same sectors where you are
• 10:53
  Speaker 1: doing a lot of in person contact and so there
• 10:55
  Speaker 1: are greater health risks and so employees have have to
• 10:59
  Speaker 1: be compensated it for that, and we've seen a pretty
• 11:01
  Speaker 1: sharp jump in wages as a result. So, for example,
• 11:04
  Speaker 1: just in the leisure and hospitality sector, wages are of
• 11:07
  Speaker 1: about eight percent since the start of the year. Were
• 11:10
  Speaker 1: there any other standout sectors that you saw, well, Transportation
• 11:14
  Speaker 1: warehousing has been another, So this is an area that's
• 11:18
  Speaker 1: obviously been in high demand given the strength in good
• 11:21
  Speaker 1: spending that we've seen over the course of the pandemic.
• 11:25
  Speaker 1: And this is also another sector that you tended to
• 11:27
  Speaker 1: have a lower pay rate to begin with, and so
• 11:30
  Speaker 1: that that means that you're going to have to see
• 11:33
  Speaker 1: UM stronger wages there, I think, to entice some workers
• 11:35
  Speaker 1: back into the jobs market again given those health concerns
• 11:38
  Speaker 1: and the offset provided by some of those unemployment benefits. Sarah, Okay,
• 11:43
  Speaker 1: So now the discussion I think pivots a little bit
• 11:45
  Speaker 1: to the FED. What does the FED takeaway from this
• 11:49
  Speaker 1: job's report and maybe some of the other echo data
• 11:52
  Speaker 1: we see out there. Yeah, I think overall this is
• 11:55
  Speaker 1: a pretty strong report and what the Fed wants to
• 11:59
  Speaker 1: see is as far as progress growth goes on the
• 12:02
  Speaker 1: labor market. And then the big question though, is this
• 12:05
  Speaker 1: enough to maybe move some of the more devish members
• 12:08
  Speaker 1: of the Fed off their their taper timing. Um. I
• 12:12
  Speaker 1: think you know, this certainly kicks the box if you're
• 12:14
  Speaker 1: in the government Waller camp. But I think when you
• 12:18
  Speaker 1: look at the clouds on the horizon with with the
• 12:20
  Speaker 1: delta variant and how that might slow the timing of
• 12:25
  Speaker 1: when we get clarity on on just how much the
• 12:27
  Speaker 1: labor supply comes back, I think that might keep some
• 12:31
  Speaker 1: folks wanting to see um that fall data, which would
• 12:35
  Speaker 1: probably put the taper announcement more towards December, and it
• 12:40
  Speaker 1: may or may not raise the case for raising rates. Right, So,
• 12:46
  Speaker 1: I mean, I think the case for for raising rates
• 12:49
  Speaker 1: is still pretty far off. But what we've seen, um,
• 12:52
  Speaker 1: you know, particularly from Governor Wallers comments, but even from
• 12:56
  Speaker 1: vice vice share claratives comments as well, is that they
• 12:59
  Speaker 1: are thinking about the flexibility later on down the road.
• 13:02
  Speaker 1: So if we continue to see upside surprises in inflation,
• 13:06
  Speaker 1: if we continue to see some pretty strong jobs numbers
• 13:09
  Speaker 1: and rapid improvement in the labor market. They want that optionality.
• 13:14
  Speaker 1: But I think we we still see some some of
• 13:16
  Speaker 1: your term risks on the horizon that we think they'll
• 13:19
  Speaker 1: will probably stay patient a little longer yet. And Sarah,
• 13:22
  Speaker 1: I just want to fall up on that inflation point
• 13:24
  Speaker 1: you were making here. I mean, on those rare days
• 13:26
  Speaker 1: when I was paying attention in economics class, I was
• 13:29
  Speaker 1: taught you can't really have real inflation unless you're gonna
• 13:31
  Speaker 1: have wage inflation. And I'm not sure this report kind
• 13:34
  Speaker 1: of suggests that that's on the table here. How do
• 13:37
  Speaker 1: you think about inflation and going forward? Well, I think
• 13:42
  Speaker 1: we have some continued upward pressure that we're seeing. So
• 13:45
  Speaker 1: you know, there's a couple of of the categories that
• 13:47
  Speaker 1: have made a lot of headlines, like used autos that
• 13:50
  Speaker 1: are probably do do for some payback here pretty soon.
• 13:53
  Speaker 1: But we still have a lot of pressure in the
• 13:54
  Speaker 1: system if we look at what's happening across supply chains
• 13:57
  Speaker 1: and what that's doing to the goods picture. But I
• 14:00
  Speaker 1: think what's really important is we look further down the road.
• 14:03
  Speaker 1: Is this um pressure that we are seeing from from
• 14:06
  Speaker 1: the labor side now part of this might be a
• 14:08
  Speaker 1: little bit overstated of what the post COVID trend is,
• 14:11
  Speaker 1: given that there is this timing mismatch between how soon
• 14:16
  Speaker 1: employers want workers back and and how soon that labor
• 14:20
  Speaker 1: is willing to return. And so we have seen some
• 14:23
  Speaker 1: pretty remarkable increases, at least some within different industries over
• 14:27
  Speaker 1: over the past few months. But I think this is
• 14:30
  Speaker 1: a source of probably more durable inflation pressures over over
• 14:35
  Speaker 1: the coming months. That's going to keep the overall pace
• 14:37
  Speaker 1: of inflation elevated and and slow to return back towards
• 14:41
  Speaker 1: the FEDS two percent target. And how much does this
• 14:44
  Speaker 1: delta variant threaten this progress and any near term progress.
• 14:50
  Speaker 1: I think it threatens to slow the progress. I don't
• 14:53
  Speaker 1: think this is going to derail the expansion by any means.
• 14:57
  Speaker 1: So we have tools to deal with the virus, so
• 15:01
  Speaker 1: you know, as compared to the prior waves, we have
• 15:04
  Speaker 1: access to really good vaccines. And then we have learned
• 15:09
  Speaker 1: over the course of the past sixteen months or so,
• 15:12
  Speaker 1: how did you business and how to still um have
• 15:16
  Speaker 1: you know, economic activity within UM within this environment, so
• 15:21
  Speaker 1: businesses have adjusted, UM we have we we know how
• 15:25
  Speaker 1: to have better health hygiene and so I think that's
• 15:28
  Speaker 1: going to limit the dent to activity, but it is
• 15:31
  Speaker 1: going to to weigh on the margin. And so I
• 15:33
  Speaker 1: think UM again, probably somewhat slower um than we would
• 15:36
  Speaker 1: have expected maybe a month or six weeks ago. All Right, Sarah,
• 15:39
  Speaker 1: thank you so much for joining us. We really appreciate
• 15:41
  Speaker 1: your thoughts and insight. Sarah House, director and senior economist
• 15:45
  Speaker 1: for Wells Fargo's corporate and investment bank. Right now, let's
• 15:51
  Speaker 1: go talk about getting some of these Wall Street folks
• 15:53
  Speaker 1: back into the office. We need an ire here back
• 15:57
  Speaker 1: in the office of the Interactive Rovers studio. But we've seen,
• 16:02
  Speaker 1: you know, some news come out of the last couple
• 16:04
  Speaker 1: of days from the legs of Wells Fargo and in
• 16:06
  Speaker 1: black Rock that perhaps perhaps they are going to delay
• 16:10
  Speaker 1: this from September to October. Amazon came back and said
• 16:13
  Speaker 1: all the way to January. But let's talk about the
• 16:15
  Speaker 1: Wall Street folks. And to do that we welcome Hannah Levitt.
• 16:17
  Speaker 1: She's a financi reporter for Bloomberg News. Joinings on the
• 16:20
  Speaker 1: phone from New York. So, Hannah, it seems like we're
• 16:22
  Speaker 1: seeing some of these big investment banks backtrack a little
• 16:25
  Speaker 1: bit on their scheduling. Yeah, so it's it's really a
• 16:29
  Speaker 1: confusing time, right because there's those rising cases, there's to
• 16:32
  Speaker 1: dom CDC guidance and so well, different banks were already
• 16:36
  Speaker 1: taking you know, for each bank there's their own approach,
• 16:39
  Speaker 1: and that gulf has kind of gotten wider recently. And
• 16:42
  Speaker 1: what you're seeing is you have two firms, really JP
• 16:45
  Speaker 1: Morgan and Goldman Sacks, that are really leading the charge
• 16:48
  Speaker 1: on return to office. You know, they called workers back
• 16:50
  Speaker 1: at least on a part time basis earlier this summer.
• 16:54
  Speaker 1: And then you have some other firms that are taking
• 16:55
  Speaker 1: it slower. And so that's like Wells Fargo for example.
• 16:58
  Speaker 1: You know, they were pointing to early September is when
• 17:01
  Speaker 1: they were going to start that process of getting people
• 17:04
  Speaker 1: back into the office, and they said yesterday that it
• 17:07
  Speaker 1: would be um October instead, so and we saw Black
• 17:11
  Speaker 1: Crock do the same thing. So it's yeah, there definitely
• 17:14
  Speaker 1: is uh, you know, different approaches going on here, Kenna.
• 17:17
  Speaker 1: Do you know what I wonder if this has more
• 17:19
  Speaker 1: to do with the data for the delta variant or
• 17:23
  Speaker 1: it has to do with the fact that a lot
• 17:24
  Speaker 1: of people are resigning if their companies ask them to
• 17:27
  Speaker 1: go into work. Yeah, you know, that's a really interesting question.
• 17:31
  Speaker 1: And I also think that, um, something worth exploring here
• 17:35
  Speaker 1: is just you know, for the firms that have already
• 17:38
  Speaker 1: started doing this, I don't know how you unring that bell, um,
• 17:42
  Speaker 1: so that you know you're dealing with kind of apples
• 17:44
  Speaker 1: and orangers when you're talking about, um, you know, sending
• 17:48
  Speaker 1: people back home versus when you start bringing people back.
• 17:51
  Speaker 1: So follow up on Nita's line there, I mean, are
• 17:55
  Speaker 1: we is there examples where we've had like major I
• 17:58
  Speaker 1: don't know groups or trade eating deaths, or say or
• 18:02
  Speaker 1: maybe a regional office in Florida or Texas saying we
• 18:06
  Speaker 1: don't really need to come back. Um, you know, I mean,
• 18:10
  Speaker 1: I think when you think about some of these big banks,
• 18:13
  Speaker 1: you think about all all the locations that they have
• 18:15
  Speaker 1: and them really being you know, a cross section of
• 18:18
  Speaker 1: the country in that way, and especially when you are
• 18:21
  Speaker 1: when you start looking at like their branch operations as well,
• 18:23
  Speaker 1: which is kind of a different question because those people
• 18:25
  Speaker 1: have been going in uh this whole time. But yeah,
• 18:28
  Speaker 1: I think that that people's reactions, my senses at the
• 18:32
  Speaker 1: banks kind of um, you get the diversity of reactions
• 18:35
  Speaker 1: that you know, you're you're seeing and reading about, so
• 18:40
  Speaker 1: you know what I see. Also, we know that Goldman,
• 18:42
  Speaker 1: Sachs and JP Morgan there they are not forcing workers
• 18:46
  Speaker 1: to get the shot. Um, but we found out last
• 18:49
  Speaker 1: week I believe that it would be legal for employees
• 18:53
  Speaker 1: to require shots. And so I wonder how much of
• 18:56
  Speaker 1: that also played into the decision. Uh. Yeah, and we've
• 19:01
  Speaker 1: we have seen them stop short. You know, a couple uh,
• 19:04
  Speaker 1: a couple of banks have warned that this might be
• 19:07
  Speaker 1: on the table, but no one uh of the big
• 19:09
  Speaker 1: you know, of the giant lenders like JP Morgan and
• 19:11
  Speaker 1: Goldman have not mandated that. We've seen Morgan Stanley say
• 19:15
  Speaker 1: only vaccinated employees can return to our New York offices.
• 19:19
  Speaker 1: But then you know, we we wrote about yesterday to
• 19:22
  Speaker 1: vaccine employees then got uh COVID at their office. So
• 19:25
  Speaker 1: this really just shows again like the the different approaches
• 19:30
  Speaker 1: that are being taken, and also the reality that, um,
• 19:33
  Speaker 1: this pandemic is still very much going on. Yeah, and Hannah,
• 19:36
  Speaker 1: we had I remember we made a pretty big deal
• 19:38
  Speaker 1: when JP Morgan brought their people back. I know Snali
• 19:41
  Speaker 1: Bassik from Bloomberg News is actually reporting on site there
• 19:44
  Speaker 1: in New York City, at their headquarters. Have we had
• 19:46
  Speaker 1: any feedback from the JP Morgan folks about how things
• 19:49
  Speaker 1: might be going. I mean, I think so they were
• 19:53
  Speaker 1: people at JP Morgan, we're going back into the office, um.
• 19:58
  Speaker 1: For they've been doing that for a while, so that
• 20:00
  Speaker 1: there was, um, you know, at the time, which I
• 20:04
  Speaker 1: believe they put out a memo in mayor June saying
• 20:06
  Speaker 1: by July people should be in you know, at least
• 20:09
  Speaker 1: part time, UM. But a lot of people were already
• 20:13
  Speaker 1: going in UM. And so I think that that stayed
• 20:16
  Speaker 1: pretty consistent. And lastly, do you think that um just
• 20:22
  Speaker 1: going forward, this might be a thing that companies may do.
• 20:26
  Speaker 1: They may require workers to get the shot or or else.
• 20:32
  Speaker 1: I think that's a great question. And uh, I mean
• 20:34
  Speaker 1: we've seen we've seen firms and other industries do it.
• 20:37
  Speaker 1: So I guess the question really is, are are these
• 20:40
  Speaker 1: banking giants going to take the plunge and do that?
• 20:43
  Speaker 1: And I guess that remains to be seen. All right. Hannah,
• 20:45
  Speaker 1: thank you so much for joining us. We appreciate it.
• 20:47
  Speaker 1: Hannah Levitt, financial reporter for Bloomberg News, joining us on
• 20:49
  Speaker 1: the phone from New York. Now let's get over to
• 20:55
  Speaker 1: Ethan devit. She is the c i O at Monetta.
• 20:58
  Speaker 1: They've got twenty seven points four billion dollars in assets
• 21:02
  Speaker 1: under management. And first off, well, first off, good morning,
• 21:05
  Speaker 1: thanks for joining us. Let me ask what you your
• 21:09
  Speaker 1: reaction is to this job's number. Well, obviously, I would
• 21:13
  Speaker 1: consider this quite a lagging indicator here in that this
• 21:16
  Speaker 1: was the job sport which came out in advance of
• 21:19
  Speaker 1: the delta variants, leading to increase mass mandates across the
• 21:22
  Speaker 1: country and just ongoing uncertainty to saw today the Auto
• 21:25
  Speaker 1: Show and New York was counceled, and this is that
• 21:28
  Speaker 1: we're in a climate up great uncertainty, and if we
• 21:31
  Speaker 1: have renewed mass mandates, will this mean certain indoor vince
• 21:34
  Speaker 1: venues will close? And what's going to happen to to
• 21:37
  Speaker 1: to the employment in that case? So I'd say it's
• 21:40
  Speaker 1: really it's it's interesting, and it is certainly consoling to
• 21:42
  Speaker 1: markets that markets have reacted accordingly. But I see this
• 21:45
  Speaker 1: is actually more looking to pass, not really an indicator
• 21:49
  Speaker 1: of what the rest of the summer and the fall
• 21:50
  Speaker 1: will hold. All Right, it's a very good point, and
• 21:53
  Speaker 1: the uptick in the delta variant has been disturbing, to
• 21:57
  Speaker 1: say the least, we've seen it effect the real omy,
• 22:00
  Speaker 1: with a number of Wall Street firms and mega cap
• 22:05
  Speaker 1: tech firms pushing back their return to work. Um, how
• 22:12
  Speaker 1: you know, how how difficult is it to work with
• 22:14
  Speaker 1: this kind of uncertainty. It's extremely difficult. And I've said
• 22:18
  Speaker 1: before that markets really are sort of fishing for answers
• 22:20
  Speaker 1: right now. They're sort of playing around in areas such
• 22:23
  Speaker 1: as the is it going to be good for the
• 22:26
  Speaker 1: stay at home stocks? Is the tech stox of pelotons,
• 22:28
  Speaker 1: zooms the slacks? Are are we going to see return
• 22:31
  Speaker 1: to some of the value names that were overlooked? And
• 22:34
  Speaker 1: then we saw a cyclically come back at the beginning
• 22:36
  Speaker 1: of the year, but they then fall off again as
• 22:37
  Speaker 1: some of the uncertainty came into the summer. So I
• 22:39
  Speaker 1: think it's really a question of fishing. There is still
• 22:42
  Speaker 1: strong support. I've spoken before about the wall of money
• 22:45
  Speaker 1: that I believe it's still poised to enter markets upon
• 22:48
  Speaker 1: a correction. Every correction is is very short lived, as
• 22:51
  Speaker 1: we've seen even in this past week and last week.
• 22:54
  Speaker 1: It really is that a day long and then markets
• 22:56
  Speaker 1: will will will crowd back in again, Investors will cred
• 22:59
  Speaker 1: back in again, and for that reason, it's really everything
• 23:01
  Speaker 1: is happening in real time. It's very dynamic. We're very
• 23:04
  Speaker 1: short cycled right now, so tremendous uncertainty, but still the
• 23:07
  Speaker 1: momentum is still upwards. I want to talk about the
• 23:09
  Speaker 1: persistence of two things then, from your perspective, inflation and
• 23:15
  Speaker 1: E s G investing. I know they're very different issues,
• 23:19
  Speaker 1: but um I had the same question in each one.
• 23:21
  Speaker 1: So is inflation transitory? Let's start with that one. I
• 23:25
  Speaker 1: don't believe that it is. I think we are here
• 23:27
  Speaker 1: with significantly higher rates of inflation that we've been comfortable
• 23:31
  Speaker 1: with over the past a number of years, where we've
• 23:33
  Speaker 1: really been hovering around about two percent. There have been
• 23:36
  Speaker 1: deflationary forces causing that, just generally that the gig economy
• 23:40
  Speaker 1: and components come down, and then of course supply shortages
• 23:44
  Speaker 1: and and other disruptions of COVID led to the somewhat
• 23:46
  Speaker 1: artificial supplied constraints which have led to some of the
• 23:49
  Speaker 1: increases we're seeing now. But I don't believe it's transitory.
• 23:53
  Speaker 1: I think we're looking at stay higher levels for at
• 23:56
  Speaker 1: least the next eighteen months. And because the companies have
• 24:00
  Speaker 1: been able to weather this form so far, there has
• 24:01
  Speaker 1: been a built up of inventory. They have been relatively
• 24:05
  Speaker 1: able to push prices through to consumers. They have pricing power.
• 24:08
  Speaker 1: I think they were going to see margins contracting as
• 24:11
  Speaker 1: a result of persistent inflation. That's going to cause jitters,
• 24:15
  Speaker 1: and I think consumers themselves are going to kind of
• 24:17
  Speaker 1: let the A bulliants die down a little bit from
• 24:19
  Speaker 1: stimulus checks and from the pent up be cash pile
• 24:22
  Speaker 1: that they've built over COVID that will dissipate, and then
• 24:25
  Speaker 1: we're going to see I think inflation really starting to buy. Yeah.
• 24:28
  Speaker 1: I mean we're starting to hear that from more and
• 24:31
  Speaker 1: more economists and more business leaders. Honeywell internationals UM CEO
• 24:36
  Speaker 1: Darius and Damsi yesterday told us that he sees downward
• 24:41
  Speaker 1: pressure on supply and upward pressure on demand and he's
• 24:45
  Speaker 1: not seeing either one of those things kind of um
• 24:48
  Speaker 1: turned look like they're gonna turn around in the near future.
• 24:51
  Speaker 1: How do you think the FED is going to start
• 24:53
  Speaker 1: to react to this, because now we even you know,
• 24:55
  Speaker 1: some members of the Pharaoh Reserve Um Open Monetary Committee
• 25:01
  Speaker 1: are are starting to say the same thing. I don't
• 25:04
  Speaker 1: see them reacting. I think they will find any way
• 25:06
  Speaker 1: in order to to classify inflation that it is not
• 25:10
  Speaker 1: a real time concern. They're prepared to tolerate at somewhat
• 25:14
  Speaker 1: higher levels of inflation. We've already seen that. I think
• 25:16
  Speaker 1: what is dominating the Fed's response is their unwillingness to
• 25:20
  Speaker 1: rock the boat of the so called I think it's
• 25:22
  Speaker 1: still a fragile economic recovery. I think the delta various
• 25:25
  Speaker 1: a reminder that we're not back to to to normal
• 25:28
  Speaker 1: yet much as money would like, and therefore markets are
• 25:31
  Speaker 1: still quite fragile. And I see the FED is being
• 25:34
  Speaker 1: more driven by the desire not to rock that boat
• 25:36
  Speaker 1: than than a need to react to inflation, which they
• 25:38
  Speaker 1: don't think so far, is is actually too much of
• 25:41
  Speaker 1: a concern. Uh So can you take advantage of that
• 25:45
  Speaker 1: as an as an investor? Or? Is it too difficult?
• 25:47
  Speaker 1: I mean, don't fight the Fed? Is hard, don't don't
• 25:50
  Speaker 1: fight the Fed. Um, if we're going to look at
• 25:52
  Speaker 1: lower for longer rates, what's going to mean that traditional
• 25:54
  Speaker 1: fixed income is not going to be a great still
• 25:57
  Speaker 1: not going to be a great place to be, and
• 25:58
  Speaker 1: we're not in a rising rate environment. But I still
• 26:00
  Speaker 1: don't think there's a particularly good upside and core fixed
• 26:03
  Speaker 1: income today, I think, whether the FED likes to recognize
• 26:06
  Speaker 1: it or not, inflation is here, and how do we
• 26:09
  Speaker 1: respond to inflation and how do we allow portfolios to
• 26:12
  Speaker 1: be UM to be resilient against inflation. Well, Equity traditional
• 26:16
  Speaker 1: equity holding are traditionally a good head against inflation in
• 26:19
  Speaker 1: the medium to long term, not for inflation shocks. But
• 26:22
  Speaker 1: given that most investors have a solid equity underpinning of
• 26:25
  Speaker 1: their portfolios, I believe those portfolios will be resilient in
• 26:27
  Speaker 1: the medium terms as far as inflation shocks. Typically, commodities
• 26:32
  Speaker 1: might respond well to inflation shocks, but there tend to
• 26:34
  Speaker 1: be too volatile for most investors to hold. So what
• 26:37
  Speaker 1: like commodities will real acts, infrastructure investing, real estate investing.
• 26:43
  Speaker 1: They tend to have more typical triggers are linked to
• 26:45
  Speaker 1: inflation and to provide more inflation resilience going forward. So
• 26:49
  Speaker 1: I always encourage investors to have a portion of their
• 26:51
  Speaker 1: portfolio that is designed to participate in inflationary conditions, and
• 26:56
  Speaker 1: not just medium to long term conditions, but also inflationary shocks.
• 27:01
  Speaker 1: And that's where real assets come in great great insight.
• 27:04
  Speaker 1: Let's get to e s G now, and UM want
• 27:07
  Speaker 1: to get your take on this, because it's a conundrum, right,
• 27:11
  Speaker 1: you want to do good, but you also want to
• 27:15
  Speaker 1: make returns? Can you do both? Absolutely? We believe in
• 27:19
  Speaker 1: sustainable investing, and I would question whether any business model
• 27:23
  Speaker 1: that is not sustainable would actually be a long term
• 27:25
  Speaker 1: business model you would want to be investing in. Any way,
• 27:28
  Speaker 1: I think the notion that E s G investing evolves
• 27:30
  Speaker 1: the return sacrifice in a somewhat antilicated one. I think
• 27:34
  Speaker 1: now investors are more sophisticated and more aware of the
• 27:36
  Speaker 1: nuance sit in that E s G. I've described it
• 27:40
  Speaker 1: as a hygiene factor going forward, that E s G
• 27:42
  Speaker 1: risks are just like any sort of risk factors that
• 27:45
  Speaker 1: will have to be assessed in any assessment of a
• 27:48
  Speaker 1: portfolio or an investment fund investment. So I would say
• 27:51
  Speaker 1: that you know, E f G factors are now just
• 27:53
  Speaker 1: part of the investing due diligence, so that we're aware
• 27:56
  Speaker 1: of that and when it's the decision is made as
• 27:58
  Speaker 1: to whether a risk reward is a active that will
• 28:00
  Speaker 1: take into account to ES chief factors. As far as
• 28:03
  Speaker 1: certain other areas, like say renewable energy or water conservation,
• 28:07
  Speaker 1: they may have quite distinct kind of missions or purposes
• 28:11
  Speaker 1: attached to those investments. So maybe an investor who is
• 28:14
  Speaker 1: passionate about ocean conservation and wants to invest in a
• 28:17
  Speaker 1: water technology fund that would still have to have a
• 28:19
  Speaker 1: meaningful rate of return, I would suggest before it makes
• 28:23
  Speaker 1: a viable investment opportunity. I don't believe in return sacrifice,
• 28:27
  Speaker 1: but I do believe in looking at it holistically in
• 28:29
  Speaker 1: terms of what you want to achieve from your investment.
• 28:33
  Speaker 1: All right, even, thanks very very much for joining us.
• 28:35
  Speaker 1: Evan Devitt there, chief investment officer at Moneta, and we're
• 28:40
  Speaker 1: talking obviously about a little bit about E s G,
• 28:42
  Speaker 1: but a lot about UM, the jobs number, the FED reaction,
• 28:45
  Speaker 1: and how you as an investor can cassion on discrepancies
• 28:49
  Speaker 1: that we see in this in this market. Thanks for
• 28:52
  Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
• 28:56
  Speaker 1: listen to interviews of Apple Podcasts or whatever podcast platform
• 29:00
  Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt
• 29:03
  Speaker 1: Miller three. On Fall Sweeney, I'm on Twitter at pt Sweeney.
• 29:08
  Speaker 1: Before the podcast, you can always catch us worldwide at
• 29:10
  Speaker 1: Bloomberg Radio